For years now, Democratic lawmakers have hammered a consistent point when it comes to health care prices: Coloradans are not getting their money’s worth.
“We pay too much for too little,” Gov. Jared Polis said at a recent news conference.
But this effort to rein in the costs of care, especially when it comes to hospitals, has this year hit a barrier. While lawmakers eagerly want to reduce what hospitals charge, the state also cannot reduce hospitals’ overall revenues too much without suffering significant unintended consequences.
This is because hospitals largely account for the funding for two major programs to extend health care to some of Colorado’s most disadvantaged residents —including those who are low-income and those who live in rural areas. Hospitals have seized on this argument in bashing perhaps the most hotly contested health care bill of this legislative session: House Bill 1215, which would ban hospitals from charging so-called facility fees in many outpatient settings.
“The very people that the legislature was elected to protect are the ones who are going to be harmed,” said Julie Lonborg, a spokeswoman for the Colorado Hospital Association.
What is this controversy about, exactly? Grab your machete; this is going to get weedy.
All about the hospital provider fee
The issue here involves a complicated state and federal funding mechanism known as the hospital provider fee — or sometimes as the CHASE fee because the money goes into something called the Colorado Healthcare Affordability and Sustainability Enterprise.
The fee is part of a scheme that sounds a little bit like money laundering but is, in fact, a totally legal way for states to get more money to pay for health care. It works like this: The state charges hospitals a fee every year based on their inpatient and outpatient revenue. That big pile of money then bats its eyelashes at the federal checkbook, which sends a matching big pile of money to Colorado. The state then redistributes the combined big pile of money to hospitals, based in part on where they are located and how many low-income patients they serve.
In the 2021-22 fiscal year, hospitals paid about $1.1 billion in fees, which resulted in $1.6 billion in payments going back to hospitals, for a net reimbursement gain of more than $450 million. The redistribution formula especially favors hospitals in rural areas or those that serve lower-income populations.
But hospitals aren’t the only organizations that benefit from the funding related to the hospital provider fee. The state also uses money from the fee to pay for its portion of what is known as Medicaid expansion.
Traditionally, Medicaid was only open to adults living at or below the poverty line. But the federal Affordable Care Act allowed states to extend Medicaid coverage to people who had previously made too much money to qualify.
If a state expands Medicaid, people and families making up to 138% of the federal poverty level can be covered by the government insurance program. That’s an income of about $20,000 a year for a single person or about $41,000 a year for a family of four.
In Colorado, more than 600,000 people are covered under the Medicaid expansion, and the program is credited with significantly reducing the number of people without health coverage in the state.
The feds and the state split the cost of Medicaid. In Colorado, the federal government funds about 65% of the program overall, while the state picks up the remaining 35%. But the state gets a better deal for the expansion. The federal government pays for 90% of the expansion, while the state must pick up only 10%.
Untangling the debate over Medicaid funding
This is where the provider fee money comes in — the state uses it to pay its share of the expansion costs. This is also where hospitals have focused their arguments against this year’s price-slashing bill.
To calculate how much hospitals pay for the provider fee, the state looks at inpatient days and total outpatient charges. In the 2021-22 fiscal year, that broke down to $528 million for charges related to inpatient care and $610 million for charges related to outpatient care.
If hospitals are no longer allowed to charge facility fees for many outpatient services, they say their outpatient revenue will plunge. That would mean hospitals pay less into the provider fee pot, which would draw down fewer matching dollars from the federal government.
The overall result, hospitals claim, would be a smaller pile of money to pass around — possibly leaving little left over for the state to fund the Medicaid expansion if the cut to hospital revenue slices too deeply.
“Our concern is that this reduction is significant enough to have an impact on Medicaid expansion and has the potential to wipe it out altogether,” Lonborg, with the hospital association, said.
The state Department of Health Care Policy and Financing, which administers Medicaid in Colorado, declined to comment on hospitals’ analysis.
“We will review the legislation and reserve comment on the claim,” spokesman Marc Williams wrote in an email.
Consumer advocates call B.S.
The basic premise behind hospitals’ argument is solid, said Glen Mays, a professor at the Colorado School of Public Health who studies health care systems and management. If hospitals take a big enough hit, it would ripple into the provider fee and, ultimately, funding for Medicaid expansion.
But Mays also questioned whether the doomsday scenario would come to pass. Hospitals may just as likely find new ways to maintain revenue by boosting other charges — meaning the financial impacts may not be as bad as they predict.
“The question,” Mays said, “would be: What is the magnitude of that kind of impact?”
Hospitals have already provided their answer to this question: They say the bill would cut their annual revenues by a total of $9 billion — more than enough to dramatically impact the provider fee.
But proponents of the bill say hospitals are over-inflating its impact.
Isabel Cruz, the policy manager for the Colorado Consumer Health Initiative, which supports the bill, said hospitals won’t take anywhere near the kind of hit they claim. Like Mays, she said many hospitals would likely shift costs into other charges. And she said the bill also may not affect as many outpatient services as hospitals are claiming.
Cruz cited an actuarial review, which is so far unpublished, that she said found hospitals would see an annual impact from the bill of about $140 million a year.
“That money is really valuable for consumers,” she said. But is it enough to dent the provider fee and Medicaid funding?
“There should not be a significant-to-any impact on CHASE funding,” Cruz said.
A fiscal note on the bill, which is produced by nonpartisan legislative staff and attempts to calculate the bill’s financial impact on the state, doesn’t take a side on the issue. The note says funding for the provider fee will “decrease by an indeterminate amount,” depending on what services end up being covered, how hospitals make up that revenue if at all and what the whole puzzle means for how much people use health care.
“Impacts to (provider) fee revenue will be adjusted for through the normal budget process,” the note states — i.e., if the amount collected by the fee drops, the legislature will either bring in money from elsewhere or make cuts.
Polis is noncommittal
House Bill 1215 currently has four Democratic sponsors, spread across the state House and Senate. But, so far, Polis has not given his endorsement.
At a news conference earlier this month, Polis and Democratic lawmakers touted a package of health care bills they say would save people money. The bills are largely enhancements to previous Polis administration initiatives, such one to strengthen the state’s authority around Colorado Option insurance plans and another to expand the work of a drug affordability board.
The facility fees bill, though, was not included in the package. And, when asked whether he supports the measure, Polis was noncommittal.
“Well, we haven’t seen that one yet,” Polis said — though the bill had been introduced eight days prior to the news conference. “Obviously, we want to save people money on health care every way we can. Certainly I’m concerned by the degree of consolidation that has reduced competition in many areas of our state. If there’s a way to discourage further consolidation, it’s an area that can be fruitful to look into. But to me, we want to get at really the underlying cost factors.”
What that means for the bill remains to be seen.
The bill is scheduled to have its first committee hearing on March 24 in the House Health and Insurance Committee.